FPA Capital Betting on Oil

Dennis Bryan, whose FPA Capital Fund (FPPTX) beat 99 percent of peers over the past quarter century, is betting oil stocks will keep him ahead of the competition as growing energy demand rewards investors who are prepared to sit out some of the biggest price swings of any industry.
The BLOOMBERG RISKLESS RETURN RANKING shows energy had the top return among the 10 broad industry groups in the Standard & Poor’s 500 Index in the decade ended Jan. 31, even with the second-highest volatility. Energy stocks rose 7 percent after taking into account swings that were greater than for any group except financial companies.
“Volatility is our friend,” said Bryan, who together with Rikard Ekstrand manages the $1.29 billion FPA Capital, the best diversified stock fund over the past 25 years. “It is what gives us opportunities to sell into strength and buy into weakness.”
Growing demand for fuel from emerging countries such as China and India sent energy shares soaring in the past decade as oil prices quintupled. Crude oil’s three-month implied volatility, a gauge for future price swings, fell to a seven- month low yesterday, suggesting price swings may remain limited. FPA Capital had 44 percent of its stock assets in energy at year-end, the most for any diversified domestic equity fund with $500 million or more, according to data compiled by Morningstar Inc. in Chicago.
Holding Cash
The risk-adjusted return, which isn’t annualized, is calculated by dividing total return by volatility, or the degree of daily price-swing variation, providing a measure of income per unit of risk.
Energy scored best because its total return was enough to offset its gyrations. The stocks returned an unadjusted 212 percent, including dividends, almost twice the gain of the second-strongest group, materials companies such as paper producers.
Consumer-staples stocks had the second-best risk-adjusted return, at 6.1 percent, and the S&P 500 Index (SPX) increased 1.9 percent.